Rajesh Bhatia, the CFO of Uflex Ltd, among the largest players in the packaging industry, is a worried man. The Noida-based firm is bearing around Rs 3-4 crore of additional tax outgo in three of its manufacturing units in Jammu & Kashmir, where it enjoyed tax exemption earlier, after the GST implementation.

Uflex, a Rs 3,890 crore firm, is getting only 29 per cent of the Integrated GST (IGST) on inter-state movement of goods as refund. This is in contrast to the 100 per cent refund enjoyed pre-GST in hilly states including J&K.

Under budgetary support for refund of taxes in J&K, the refund in case of IGST paid is only 29%. “Since a major part of the sale of Uflex is outside J&K, Uflex will get only 29% of the IGST paid on such inter-state sale. There was no such restriction for inter-state sale in the earlier regime,” Bhatia said in an interview with ETCFO.

To make matters worse, procedural issues are leading to delays in receiving even 29 per cent refund. “For all the three J&K units, refunds of Rs 16.73 crore are still stuck for the period between July 2017 and March 2018. Of this, the central tax department has initiated refunds of Rs 4.35 crores for the first two quarters of GST commencement and rest of the refund is yet to be processed by both the central and state tax departments,” he said.

The government had in October 2017 notified the Scheme of Budgetary Support under GST for the hilly states like J&K, Himachal Pradesh, Uttarakhand and North Eastern states including Sikkim. It provided for budgetary support to eligible units by way of part reimbursement of GST limited to the centre’s share of Central CGST and IGST retained after devolution of a part of these taxes to the states. The idea was to ease the hardships for industries arising out of withdrawal of tax exemptions under the new tax regime.

So, while there was no tax payment required pre-GST, companies now have to make the full payment post-GST. The government later gives partial refund on the basis of returns filed. The scheme came into effect in July last year and is valid up to June 30, 2027.

The notification stated that 58 per cent of the central tax and 29 per cent of the integrated tax will be paid through debit in the cash ledger account after utilization of the input tax credit of the central tax and integrated tax, respectively.

On the contrary, GST refunds from such units have become an extended challenge for firms like Uflex. Under the GST regime, all the taxes are to be paid first and the application for refund claim is to be filed on quarterly basis. A pat of the refunds has to come from the state and the rest from the centre. “That is nightmarish,” said Bhatia. “Now that companies are making these payments to states, at the time of refunds, they do not have the money to pay,” he adds.

Uflex is grappling with taxation issues for J&K units under GST as in the previous tax regime, incentives available in the state were on excise duty that was paid net of input credit and was refunded to the manufacturer. Also, Value Added Tax (VAT) was exempted and companies had exemption of input tax from levy of Central Sales Tax, too.

“The GST benefit that we are getting has already been reduced substantially and, on top of it, we are not even getting the refunds,” Bhatia said. He, however, added that in all the other areas, the impact of GST implementation was neutral except for the significant challenge in the exempted units.

A recent Allahabad high court judgment may, however, provide some relief with the court ruling that there shall be no tax levied in case of purchases made at duty free stores at the arrival or departure terminals.